Walgreen-Express Scripts Deal Boosts Both Companies

By Avi Salzman

Shares of Walgreen (WAG) soared 12% on the announcement it had ended its seven-month long dispute and entered into a new multi-year reimbursement agreement with pharmacy-benefit manager Express Scripts Holding (ESRX).

Prior to entering into the agreement, both companies struggled to come to consensus over the reimbursement rates for prescriptions. As the dispute wore on, patients went elsewhere to fill their prescriptions and same-store sales at Walgreen slumped.

The market welcomed the news that the dispute had ended, while rival pharmacies saw their shares fall. CVS Caremark (CVS) was down 5.9% and Rite Aid (RAD) fell 5.5%.

Express Scripts rose 1.9% on the news and Barclays analyst Lawrence C. Marsh raised the company’s price target to $68 from $65 in an update.

“We believe that this announcement lifts our top-line visibility to 2014, which we believe was already reasonably high, and most likely confirms the consistent Express pricing view around its retail network. It is our view that this agreement is in the best interest of both parties,” wrote Marsh.

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